Bargain sale to charity.

What the IRS means by a bargain sale

Publication 526 defines it plainly: a bargain sale of property is a sale or exchange for less than the property’s FMV. A bargain sale to a qualified organization is partly a charitable contribution and partly a sale or exchange. The part that is a sale or exchange may result in taxable gain, and the publication points to Pub 544 (Sales and Other Dispositions of Assets) for that figure. This page covers the contribution part.

The three steps

1. Step 1. Subtract the amount you received for the property from the FMV at the time of sale. The result is the FMV of the contributed part.
2. Step 2. Find the adjusted basis of the contributed part: adjusted basis of the entire property × FMV of the contributed part ÷ FMV of the entire property.
3. Step 3. Decide whether the charitable contribution is the FMV of the contributed part (Step 1) or its adjusted basis (Step 2). Generally, if the property sold was capital gain property, the contribution is the FMV of the contributed part. If it was ordinary income property, it is the adjusted basis of the contributed part.

Why the type of property matters

Capital gain property is property that would have produced long-term capital gain on a sale at FMV; capital assets held more than one year qualify. Ordinary income property is inventory, works of art or manuscripts created by the donor, and capital assets held a year or less, along with business property to the extent of depreciation recapture. For ordinary income property the deduction is the FMV minus the amount that would be ordinary income or short-term capital gain, which generally limits it to basis. That is why Step 3 sends it to the Step 2 figure.

The publication’s example

You sell ordinary income property with an FMV of $10,000 to a mosque for $2,000. Your basis is $4,000 and your AGI is $20,000, and you make no other contributions. The FMV of the contributed part is $8,000 ($10,000 − $2,000). The adjusted basis of the contributed part is $3,200 ($4,000 × ($8,000 ÷ $10,000)). Because it is ordinary income property, the deduction is limited to $3,200.

Same numbers, capital gain property

The arithmetic below is ours, applying Steps 1 to 3 to the same figures. If the property were capital gain property, the contribution would be the Step 1 figure, $8,000, instead of $3,200. The AGI limit then applies: with AGI of $20,000, capital gain property given to a 50% limit organization at full FMV is limited to 30% of AGI, or $6,000, so $2,000 would carry over (hypothetical, assuming no other gifts).

Limits that still apply

The contributed part is an ordinary contribution for limit purposes. For capital gain property given to a church, school or other 50% limit organization the limit is 30% of AGI, and to other organizations 20%; the excess carries over 5 years. See the 30 percent AGI limit page.

Records and reporting

A payment of more than $75 that is partly a contribution and partly for goods or services requires the charity to give you a written statement with a good faith estimate of the value. For a noncash deduction over $5,000, Form 8283, Section B must include a statement explaining whether the gift was made by means of a bargain sale and, if so, the amount of any consideration you received. Noncash gifts over $500 in total require Form 8283. Deductions over $5,000 generally require a qualified appraisal by a qualified appraiser. If you overstate value or basis, the accuracy-related penalty is 20% (40% at 200% of the correct amount) when the underpayment from the overstatement is more than $5,000.

Common mistakes

• Deducting the full FMV when you were paid part of it. Only the part you did not receive payment for is a gift.
• Using the whole basis against the gift. Only the contributed share of basis is used in Step 2.
• Forgetting that the other part is still a sale for gain purposes.

Related

See donating appreciated stock and property and charitable contribution carryovers. The capital gains tax calculator helps with the sale side.

Sources

• IRS Publication 526 (2025), Charitable Contributions: the sections cited on this page. Read November 2, 2026.
• IRS Tax Exempt Organization Search: the tool Pub 526 names (IRS.gov/TEOS) for checking whether an organization can receive deductible gifts. Pointed to, not queried.

Edition read: Publication 526 (2025), for use in preparing 2025 returns. Its “How To Get Tax Help” section notes that P.L. 119-21 (July 4, 2025) enacted tax reform, with updates at IRS.gov/OBBB; this page states no 2026 changes that the publication text does not spell out, so check the 2026 edition when it is released. Where the publication refers to Pub 544, Pub 561 or the Instructions for Form 8283 for more detail, this page does not restate those documents. This page summarizes the publication and does not replace it.